AstraZeneca has had its fair share of bad luck of late, with a run of pipeline
disappointments leaving Britain’s second-biggest drug maker looking somewhat
under the weather.

But investors might have cause for cheer, according to analysts at Citigroup, who reckon that AstraZeneca could return $73bn (£47bn) to shareholders over the next decade, which is more than its current market capitalisation.

“With net cash on the balance sheet and management’s track record in returning excess funds to shareholders, we see ample opportunity for acceleration of share buybacks,” said the broker.

Over the past couple of months, AstraZeneca has suffered a number of setbacks, including a delay to its new thyroid cancer pill as well as the US Food and Drug Administration postponing its decision on whether to give Brilinta – a potential blockbuster – the green light.

But analysts believed these disappointments were already priced in. They added: “We view AstraZeneca’s potential to return its market cap to investors over the next decade as outweighing the lack of earnings growth as a consequence of known patent expirations and the unimpressive recent R&D track record.”

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The broker upgraded its rating on AstraZeneca to “buy” from “hold”, although the market appeared relatively unmoved, with the drug giant ticking up only 34p to £30. Its peer, GlaxoSmithKline, was among the sharpest fallers in the benchmark index after Citi cut its rating to “hold” from “buy”.

This year looked set to be another tough one for earnings, according to analysts, who believe that consensus expectations for a gross margin of 74pc look too optimistic.

But still on the buy-back theme, the broker suggested that the healthcare giant could return in the region of £2bn a year from 2012.

Nonetheless, Glaxo fell 9½ to £12.24½, even though Jefferies upgraded its rating to “buy” from “hold” as analysts there also hoped for a share buy-back.

But Smith & Nephew took the sharpest tumble, falling 42 to 670p after it had leapt on Monday on unconfirmed reports that it had rebuffed a £7bn approach from Johnson & Johnson. Investec advised investors to consider taking some profits – which they duly did.

Despite Smith & Nephew’s slide, the blue-chip index rose for the first time in four days as fears of another sovereign debt crisis receded. Japan joined China in pledging to buy eurozone bonds, which calmed market jitters.

Leading the index higher were the banks. Barclays gained 15.3 to 292p as it – along with Lloyds Banking Group – was named among Société Générale’s top picks in the European banking sector. Lloyds rose 0.99 to 66.18p.

Ian Gordon, an analyst at Exane BNP Paribas, also kept his “outperform” rating on Barclays, saying the bank appeared well-placed to deliver further outperformance through a challenging 2011, free of the overhang from the Government’s ownership.

HSBC climbed 16.3 to 688.7p as Citi upgraded the bank to “buy” from “hold”. Analysts said they liked the new management – Stuart Gulliver recently took over as chief executive following the departure of Michael Geoghegan – and they expected higher dividends.

As well as strong growth in the Hong Kong and Asian businesses, the broker also pointed to an improving backdrop in North and South America that is driving lower loan losses.

Analysts at Citi have clearly been busy, because they also published a bullish note on Wolseley, arguing that the world’s biggest plumbing and building merchant’s shares “could be worth £45”. With Citi also reiterating its “buy” rating, Wolseley jumped 122p to £21.79.

“Given we believe in more North American margins upside than we thought previously, we feel there is another leg up in the share price to come,” said the broker.

“Our 12-month target is upped to £30 but we believe with a little bit of help from the macro environment and a more aggressive use of the balance sheet the stock could get to £45 inside three years.”

Elsewhere in the construction sector, Howden Joinery Group surged 10.6 to 116.1p as the mid-cap kitchen unit supplier said profits should comfortably beat market expectations on rising sales and improving margins.

Ashtead, which hires out equipment such as forklifts, rose 9.8 to 176.2p after buying a US scaffolding provider for around $38m. Analysts at Evolution Securities said the acquisition – its first in four years – signalled confidence.

Leading the charge among the large-caps was ARM Holdings. The designer of microchips for the likes of the Apple iPhone advanced 32½ to 497½p, with traders citing persistent takeover speculation.

There was a clearer reason behind a spike in its mid-cap peer, CSR. The chip maker surged 47 to 413p to take the gold medal after it settled a legal battle over technology patents with US rival, Broadcom.

The case concerned SiRF, an American GPS chip business, which CSR bought in 2009. The dispute predated CSR’s acquisition.

CSR will pay Broadcom $67.5m over the next five years, but CSR indicated that the majority of the settlement would be offset by a reduction in legal costs of at least $50m.

Dealers were checking out of retailers as Marks & Spencer warned that trading could get tougher as consumers tightened their belts. The retailer fell 10.8 to 373.2p, while Tesco slid 4.3 to 425.35p in sympathy.

Mid-cap Dunelm slid 30½ to 497p to take the wooden spoon as the homewares retailer said it was cautious about the second half of the year due to the impact of tax rises and higher cotton prices. Small-cap HMV held steady at 25p after Russian billionaire, Alexander Mamut, upped his stake to 6.1pc.

Amlin fell 10.7 to 392.9p after the mid-cap property and casualty insurer doubled its cost estimate for last year’s New Zealand earthquake to $160m from a previous $75m.

But Computacenter advanced 35 to 420p as the IT company said it expected profits to come in at the top end of forecasts as customers resumed their spending on IT infrastructure.